The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.
A)Sue must recognize $2,000 gross income in the current year if the company did not install the cable during the year.
B)Sue is not required to recognize gross income from the receipt of the funds, but she must reduce her cost basis in the land by $2,000.
C)Sue must recognize $2,000 gross income in the current year regardless of whether the company installed the cable during the year.
D)Sue must recognize $2,000 gross income in the current year, and when the cable is installed, she must reduce her cost basis in the land by $2,000.
E)None of the above.

Question

Quizplus · Accepted Answer

The payment received by Sue is a payment for an easement, which is a right to use a portion of her property. Since the payment is not for the sale of property, Sue is not required to recognize gross income from the receipt of the funds. However, she must reduce her cost basis in the land by $2,000 because the payment reduces the value of her property.

The Blue Utilities Company Paid Sue $2,000 for the Right